U.S. passenger carrier Southwest Airlines (NYSE:LUV) had an overwhelming Christmas, 2022, to say the least. Reports from December 28 note that the company canceled about 13,000 flights since December 22 (more than 50% of its services). Southwest’s reputation took a serious hit. Nonetheless, its operations seem to be recovering, and the company might still be able to salvage its honor with a customer-centric approach.

The Reason Behind the Commotion

During the busiest travel time of the year, winter storms hit several cities, including those with two of Southwest’s biggest hubs. This forced the airline to cancel its flights, leaving passengers stranded. At the same time, an alarming number of Southwest employees called in sick, leading to a catastrophic struggle to run operations.

Some passengers were stranded at connecting airports without their luggage, while some were left with no easy options to reach their destinations. The cancellations also led to escalated disruptions in Tennessee when police at the Nashville International Airport threatened Southwest passengers with arrest for trespassing.

Industry experts are of the opinion that the company’s delays in updating its operations and technology led to the overburden during the storms. The lost revenues, as well as reputation, will take time to recover.

However, even though the airline has said that the issues are likely to stay for at least “several days,” Southwest appears to be going in the right direction. Fewer than 100 flights were canceled over Friday and Saturday, as per Flight Aware, and any flights from key terminals were almost entirely booked despite weather delays.

“We want to take care of our customers who were disrupted, and our desire is to begin to restore their confidence in Southwest Airlines as quickly as possible,” notified Southwest CEO Bob Jordan in a memo to employees on Friday. Based on past experience, the airline might soon start deploying new strategies to woo back its loyal customers.

A Long but Doable Journey to Recovery

From free bags to flexible rescheduling policies, Southwest’s attractive customer-friendly policies are hard to deny. However, after this commotion, only refunding ticket prices may not be enough to win back the customers whose faith in the airline was firmly shaken.

Recall that Southwest experienced a small-scale meltdown back in October 2021, and it successfully navigated the issue with LUV vouchers for inconvenienced passengers. This time, however, a more generous amount of compensation may be required.

Although it was impressive of the company to own up to its mistakes, the multiple apologies from management will not bring back passengers’ luggages, wasted money, and time that could’ve been spent with family during the Holidays. Apart from monetary compensation and benefits, it is also high time for a solid strategy to be in place, which investors and customers need to see to believe.

Unfortunately, the incident with Southwest is not a one-off and is a part of a string of mishaps in the airline community over the past few months as labor issues continue to disrupt operations. This is because after restrictions were lifted, travel recovered before operating capacity could catch up. Still, this gives Southwest the benefit of the doubt among investors and customers that these disruptions may be temporary.

After the incidents over the Christmas week, a significant volume of customers lost their trust in the airline. However, after the 6% plunge on December 27, which continued into the next day, shares of LUV seem to be slowly recovering.

Is LUV Stock a Buy, According to Analysts?

LUV stock has a Strong Buy consensus rating on Wall Street based on seven Buys and one Hold. The average price target of $46.75 indicates 38.81% upside potential in the next 12 months.

Moreover, on December 29, CFRA analyst Colin Scarola maintained a Buy rating on LUV despite slashing the near-term price target to $41 from $47. “History shows customers tend not to permanently ditch an airline even after an awful experience due to the commodity-like nature of the product,” said the analyst, explaining his long-term bullishness.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Source: Nasdaq

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